Coyote Blog

The Europeans have crafted a regulatory environment in their labor market that grants all kinds of protections and gauranteed benefits at the expense of new or unskilled workers trying to join the workforce.  We are doing the same thing:

This year, it’s harder than ever for teens to find a summer job. Researchers at Northeastern University
described summer 2007 as "the worst in post-World War II history" for
teen summer employment, and those same researchers say that 2008 is
poised to be "even worse."

According to their data, only about
one-third of Americans 16 to 19 years old will have a job this summer,
and vulnerable low-income and minority teens are going to fare even
worse.

The percentage of teens classified as "unemployed"—those
who are actively seeking a job but can’t get one—is more than three
times higher than the national unemployment rate, according to the most
recent Department of Labor statistics.

One of the prime reasons
for this drastic employment drought is the mandated wage hikes that
policymakers have forced down the throats of local businesses. Economic
research has shown time and again that increasing the minimum wage
destroys jobs for low-skilled workers while doing little to address
poverty.

According to economist David Neumark of the University of California at Irvine,
for every 10 percent increase in the minimum wage, employment for high
school dropouts and young black adults and teenagers falls by 8.5
percent. In the past 11 months alone, the United States‘ minimum wage has increased by more than twice that amount.

There is very little that can make me go non-linear faster than when someone attributes economic growth to a politician, e.g. Reagan’s economy or Clinton’s economy.  So this post from Kevin Drum on the correlation between economic growth and the flavor of president in the Oval Office is just the kind of thing to make me lose it.  And not because I really care whether Team Coke or Team Pepsi looks better.

Larry Bartels says that Democratic presidents produce higher economic
growth than Republican presidents, and that the differences in average
growth rates for middle-class and poor families (but not affluent
families, apparently, who do well under both parties) are statistically
significant by conventional social-scientific standards.

OK, I have seen the analysis done different ways and accept the statistical conclusion.  You used to be able to get a really tight correlation between Washington Redskin football team performance and presidential election outcomes (via Snopes):

Sometimes one natural phenomenon supposedly
forecasts another, as in the belief that a groundhog‘s
seeing his shadow on February 2 portends another six weeks of
winter. In other instances the linkage is between affairs of mankind, as in the
superstition that the winner of football’s Super
Bowl augurs that year’s stock market performance (or vice-versa).

A recent item of this ilk maintains that the results of the last game
played at home by the NFL’s Washington Redskins (a football team based in
the national capital, Washington, D.C.) before the U.S.
presidential elections has accurately foretold the winner of the last
fifteen of those political contests, going back to 1944. If the Redskins win
their last home game before the election, the party that occupies the White
House continues to hold it; if the Redskins lose that last home game, the
challenging party’s candidate unseats the incumbent president. While we don’t
presume there is anything more than a random correlation between these factors,
it is the case that the pattern held true even longer than claimed, stretching
back over seventeen presidential elections since 1936

What gets me is not the existence of a correlation, but the explanation:

In recent decades taxes and transfers have probably been more
important. Social spending. Business regulation or lack thereof. And
don’t forget the minimum wage. Over the past 60 years, the real value
of the minimum wage has increased by 16 cents per year under Democratic
presidents and declined by 6 cents per year under Republican
presidents; that’s a 3% difference in average income growth for minimum
wage workers, with ramifications for many more workers higher up the
wage scale. So, while I don’t pretend to understand all the ways in
which presidents’ policy choices shape the income distribution, I see
little reason to doubt that the effects are real and substantial.

I have three thoughts, of which the third is what really gets me:

• It is funny that no one considers that this correlation may work in reverse.  Everyone assumes government drives short-term economic performance.  What if, to some extent, short-term economic performance drives changes in government?  If one assumes that, even without the public spirited and Herculean efforts of our presidents, economies are naturally cyclical, then why try to explain cycles on politics when we know cycles are going to exist anyway.  Why wouldn’t a perfectly valid alternate explanation be that one political party tends to be elected if the economy is in one part of the cycle and the other gets elected if the economy is in another place?
• The political brand names "Republican" and "Democrat" shift in meaning over time vis a vis economic policy recommendations, and individual presidents can diverge quite a ways from their party center line.  One can easily argue that Nixon was the most interventionist and economically ignorant president (think:  wage and price controls), despite the "Republican" brand name.  John Kennedy was more laissez faire than most Republicans are today.   Regulation, as measured by pages added to Federal Register, increased at a far faster pace under George Bush (I) than Bill Clinton.  Bill Clinton passed free market legislation, including NAFTA, that John McCain shys away from today, while George Bush passed an expansion of Medicare that Bill Clinton did not consider.  Oh, and when we discuss regulation and such, Congress sortof matter too.
• The author’s argument boils down to "the more governors and useless loads we add to an engine, the more strongly the engine will run."  It is just absurd.  None of these guys have the first clue what it takes to run a business day to day, nor how much of a business owner’s time and effort is aimed not at service customers better, and not at being more productive, and not at making employees happier or better trainined, but at responding to the latest mass of government regulation, paperwork, liscensing, taxes, and other total crap.  Here is just one example I wrote up about what sits on my desk.

To this last point, take just two things on my desk this morning.  The first is a pile of tax returns and some licensing paperwork.  Last year, our company’s total tax bill was not that large.  But the problem is that the government takes the taxes in so many bites, and every bite costs time on our part learning the process and filling out paperwork.  For example, if I take all the taxes and licensing fees we pay to federal, local, and state governments, and multiply times the number of months or quarters each requires a report, I get a number of over 400.  Four hundred individual bites, each with its own paperwork and overhead.

The other problem sitting on my desk is a snack bar I inherited on a lease in California at Lake Piru.  The snack bar is a dump.  It is designed wrong, it is set up to cook the wrong kinds of foods, and uses space in the building very inefficiently.  I want to lay the whole thing out differently, as a win-win for everyone.  We could sell more with fewer workers.  The customers would get more selection, including much healthier choices.  The operation would be safer, because we would eliminate most of the heavy cooking  (e.g. deep fat fryers).  And it would be cleaner, with less wastewater and cleaner wastewater because there would be less grease and oil.

Unfortunately, it is very clear that Ventura County, California is not going to allow me to make these changes, at least at any cost I can afford.  First, apparently I need to build a new wastewater treatment plant for the snack bar!  But I am reducing the waste water load, I argue.  Does not matter.  New code requires a plant.  So because of this environmental code, I am pushed to continue the current operation which is environmentally worse than my proposed alternative.  We have the exact same problem on fire suppression.  But I am removing the ovens and most of the cooking equipment!  It’s safer!  Doesn’t matter, if I make any change at all, I have to install a new fire suppression system.  And on and on.  this is the true face of government regulation.  We face this kind of thing ten times a day.   

Anyway, I could go on and on about this stuff, but that is what the blog is about, so I will refer you to my past (and future) posts.

Apparently, the state of Arizona, fearing the coming old-folks demographic boom, is looking to create programs to keep older Americans working longer (and by extension off the government teat longer).

The thought of millions of boomers taking their early-retirement
benefits is causing concern about the stability of Social Security and
Medicare.

"We know not everybody is going to up and retire all at once," Starns
said, "and we will have younger workers coming in. But if you look at
all the demographics, there just won’t be enough people to fill all the
jobs that could be vacant."

Add that possibility to existing shortages of workers in health-care
and other fields, she said, and "there could be some pretty significant
problems in society."

Arizona, which launched its Mature Workforce Initiative in 2005 to
avert such a crisis, was one of five states lauded last month for
efforts to engage people 50 and older in meaningful jobs and community
service.

The San Francisco-based Civic Ventures think tank also cited
California, Maryland, New York and Massachusetts, saying the five
states recognize older workers as "an experience dividend," rather than
a drain on resources.

Of course, since it is government, the state of Arizona is, with one hand, patting itself on the back for instituting vague and meaningless but well publicized programs nominally targeted at this issue, while with the other taking steps that have real and substantial effects in exactly the opposite direction.

First, Arizona has some of the toughest laws in the country to penalize businesses for hiring, even accidentally, young vigorous immigrants who don’t have all their government licenses in order.   Young workers are pouring into this state every day, but Arizona is turning them away and locking them up. 

Second, Arizona has been legislating as fast as it can to make it nearly impossible to hire older workers.  I know, because the vast majority of my work force managing campgrounds is over 65.  These workers tend to work for a free camp site plus minimum wage.  They like the job despite the low pay because they get a place to park their RV and because the job is part time and very flexible in how they work (not to mention offers the opportunity to take whole chunks of the year off).  I like these workers because they are experienced and reliable and paying them minimum wage helps offset their slowing productivity and higher workers comp costs as they age. 

Here is the math:  Older workers might work 30-50% slower than a younger worker (I have workers right now in their nineties!)  They also have higher workers comp costs, maybe equating to as much as 10% of wages.  This means that an older worker at the old minimum wage of $5.15 an hour might be financially equivalent to a younger worker making $9.50 an hour, which is about what we might have to pay for such a worker. 

However, many states have implemented higher minimum wages with annual cost of living escalators.  States like Oregon and Washington now have minimum wages over $9.00.  At $9.00 an hour, an older worker is now financially equivalent to a younger worker making $16.50 an hour, well above what I can hire such a person for.  This means that as minimum wages rise, I have to consider substituting  younger workers for older but slower workers.

Last year, Arizona adopted just such a minimum wage system with annual escalators.  Though we have not reached the point yet, the state soon may make it impossible economically to hire older workers.  Already, we are looking at some automation projects to reduce headcount in certain places.  This is sad to me, but in a business where a 12% rise in wages wipes out my entire profit, I have to think about these steps.  I have to react to the fact that, no matter how many "policy advisers on aging" the state hires, in reality it is increasing the price to my company of older people’s labor vis a vis younger workers.

Well, I should be skiing right this moment, but my son woke up barfing this morning, making it a perfect 15 of the last 15 family trips where one of my kids has gotten sick. 

But the ski lodge is nice, and the wireless works great, and Q&O has a very interesting post on immigration and welfare.

High unemployment among immigrants is of course not confined to just
Sweden or Scandinavia. Throughout Europe, governments have found that
well-intentioned social insurance policies can lead to lasting welfare
dependence, especially among immigrants. Belgium is the European
country with the highest difference in employment rates between the
foreign-born and natives. The images of burning cars in the suburbs of
Paris that were broadcast around the world illustrate the kind of
social and economic problems France is facing with its restive
immigrant population.

Given the high barriers to entry, many
immigrants in Europe no longer start accumulating essential language
and labor market skills. This is in stark contrast with the situation
across the Atlantic. For example, in 2000, Iranians in the U.S. had a
family income that was 42% above the U.S. average. The income of
Iranian immigrants in Sweden, however, was 39% below the country’s
average.

Lots of interesting stuff there.  Which reminds me of something I wrote years ago:

In the 1930′s, and continuing to this day, something changed
radically in the theory of government in this country that would cause
immigration to be severely limited and that would lead to much of the
current immigration debate.  With the New Deal, and later with the
Great Society and many other intervening pieces of legislation, we
began creating what I call non-right rights.  These newly described
"rights" were different from the ones I enumerated above.  Rather than
existing prior to government, and requiring at most the protection of
government, these new rights sprang forth from the government itself
and could only exist in the context of having a government.  These
non-right rights have multiplied throughout the years, and include
things like the "right" to a minimum wage, to health care, to a
pension, to education, to leisure time, to paid family leave, to
affordable housing, to public transportation, to cheap gasoline, etc.
etc. ad infinitum….

These non-right rights all share one thing in common:  They require
the coercive power of the government to work.  They require that the
government take the product of one person’s labor and give it to
someone else.  They require that the government force individuals to
make decisions in certain ways that they might not have of their own
free will. 

And since these non-right rights spring form and depend on
government, suddenly citizenship matters in the provision of these
rights.  The government already bankrupts itself trying to provide all
these non-right rights to its citizens  — just as a practical matter,
it can’t afford to provide them to an unlimited number of new
entrants.  It was as if for 150 years we had been running a very
successful party, attracting more and more guests each year.  The party
had a cash bar, so everyone had to pay their own way, and some people
had to go home thirsty but most had a good time.  Then, suddenly, for
whatever reasons, the long-time party guests decided they didn’t like
the cash bar and banned it, making all drinks free.  But they quickly
learned that they had to lock the front doors, because they couldn’t
afford to give free drinks to everyone who showed up.  After a while,
with the door locked and all the same people at the party, the whole
thing suddenly got kind of dull.

Megan McArdle has a good post and excerpts from Adam Shepard, who set out with $25 to see how hard it was to escape from poverty.  I won’t re-quote that post here, you should see her site, but I wanted to comment on one thing Shepard says about his early days trying to convince supervisors they should hire a homeless guy:

So, he gave me the secret. To paraphrase, he told me to go to these
managers and tell them who you are, that you are the greatest worker on
the planet and that it would be a mistake not to hire you. If they take
you on, great. If not, move on down the line. By day’s end, you’re
gonna have a job.

So I did. The next day, I went to see Curtis at Fast Company, a
moving company where I’d already applied. “Curt!” I said. “I’m Adam
Shepard, and I’m the greatest mover on the planet. It would be a
mistake for you not to hire me.” He looked at me across the table and
smiled, knowing I was lying like hell to him. But he liked my attitude
– especially after I offered to work a day for free – so he hired me on
the spot.

This is very normal — if you want someone to take a risk, you try to reduce the cost for him.  Not sure you want to try our product?  We’ll give you a free sample.  In this case, he agreed to work for free to convince the manager he was a good worker.  This makes sense — to emerge from homelessness and to get a job with no skills and no work history, one needs to be willing to give a bit of a discount on your labor, at least at first, to get someone to give you a chance.

But here is the interesting part — the arrangement Curtis and Adam Shepard made is ILLEGAL.  The Fair Labor Standards Act, which includes Federal minimum wage law, does not allow Curtis to accept unpaid labor and does not even allow Mr. Shepard to offer it.  The fact that the deal makes so much sense and it so clearly is in the mutual best interest of both parties is absolutely irrelevant under the law.  Fast Company could be busted, should the DOL choose to focus its attention their way.

When people argue that the minimum wage is most harmful to the poor, because it prices the first rung of the labor ladder beyond what their minimal skills can justify, this is what they mean.

In a post that is a nice follow-on to this one about wages in trucking, Russel Roberts has a nice post about people making minimum wage:

According to Current Population Survey estimates for 2006, 76.5
million American workers were paid at hourly rates, representing 59.7
percent of all wage and salary workers.¹
Of those paid by the hour, 409,000 were reported as earning exactly
$5.15, the prevailing Federal minimum wage. Another 1.3 million were
reported as earning wages below the minimum.²
Together, these 1.7 million workers with wages at or below the minimum
made up 2.2 percent of all hourly-paid workers.

Correcting for higher state minimum wages, but also adjusting for illegal immigrants (who are a special case with super-low bargaining power) and factoring in salaried workers (who by law to be salaried have to be making much more than minimum wage) one still finds that less than 2% or less make minimum wage, about half of whom are under 25.  Roberts has a follow-on post with comments from Tim Worstall to say that even this number may be too high:

Unfortunately, on the page he’s taken his information from he’s missed one thing which makes his case even stronger.

Nearly three in four workers earning $5.15 or less in 2006 were
employed in service occupations, mostly in food preparation and service
jobs.

That’s your waitron units and barkeeps folks. And what do we know
about people who do these sorts of jobs? Well, perhaps you have to have
actually done them (as I have, everything from the graveyard shift in a
Denny’s to tending bar around the corner from this guy’s
place): they all make tips. In fact, so much so that there is (or at
least used to be when that BLS report was prepared) a special minimum
wage for those in such jobs, one lower than the official Federal
minimum wage.

For example, way back when, the min. wage was $3.35 an hour. Waiters
got $2.01. You didn’t really care because even serving pancakes at 5 am
you made another $25-$30 a shift ($50-$150 in a decent place). Barkeeps
got $3.35 plus tips.

The BLS numbers are reporting what employers paid employees, not
what people are actually earning. So we might in fact say that while
the number being paid the minimum wage or less is 2.2% of the workforce, the number actually earning that figure is more like 0.5%.

As an aside, speaking of bargaining power, it strikes me that prostitution is an excellent example of supply and demand in labor markets trumping government mandates.  Prostitutes have absolutely no power to run to the government for help over minimum wage or work condition violations.  They have only limited power to get government help even when they are the victim of violence from those who pay them.  But on an hourly basis, the most succesful make far more than most Americans.

If I had to choose one word that describes why I despair of politics, it is "calibration."  Recently, it has been observed that Ron Paul, for example, cannot possibly win because he sticks to a basic set of beliefs and never calibrates his message to the electorate and recent polls.  On the other end of the scale, Hillary Clinton is famous for endlessly calibrating everything she does in the hopes of maximizing the votes she receives.

Calibration is one of those dangerous words that tend to obfuscate the underlying reality.  Because, there are only two possible definitions of calibration as used in this political context:

• Lying, i.e. telling the electorate what they want to hear with the intention of acting differently once in office
• Total nihilism,, i.e. willingness to shift beliefs based on whatever is effective

Russell Roberts describes the situation pretty well:

But there is little difference between Republican and Democratic
Presidents in what they actually do. In what they say? Sure. Both
Reagan and Bush talk about individual responsibility and the market
blah blah blah. Bill Clinton talked more about feeling people’s pain
and the downtrodden blah blah blah. Similarly, in the current
presidential campaign, there are stark rhetorical differences between
say Giuliani and Romney on the one hand and Obama and Clinton on the
other.

But will the actual results be different? Will Hillary double the
minimum wage? Change our health care system to be more socialized?
Eliminate corporate welfare? Will Giuliani make the health care system
less socialized? Eliminate the minimum wage? Get rid of farm subsidies?
Stop spending federal money on education?

Most of it is talk and it’s not just because change is hard to
achieve. It’s because they really don’t want change. Did Bill Clinton
get rid of income inequality? Dent it? The share of income going to the
top 1% rose throughout most of the Clinton administration. Was it his
policies? The steady rise in the share of income going to the top 1%
started rising in 1976. Was it Carter’s doing?

Was Bush or Reagan a hard core free trader in practice? Nope. They
used protectionism when it was politically expedient. Just like Bill
Clinton signed welfare reform and NAFTA and then chose not to enforce
the truck provision of NAFTA because the Teamsters didn’t like it.

Government gets bigger under both Republicans and Democrats. What
they spend money on is a little different, yes. But to hate George Bush
for being a free market guy is to miss what is really going on. And to
hate Hillary because she doesn’t understand the power of markets and to
love, say, Mitt Romney, is to misunderstand both of them. They use
rhetoric to dupe you. Don’t be duped.

This all leads to the question of into which category should we place Paul Krugman – lier or nihilist?

Paul Krugman worries that,
although trade between high-wage countries is mutually beneficial,
"trade between countries at very different levels of economic
development tends to create large classes of losers as well as winners"
- and so is suspect because it likely harms ordinary American workers
("Trouble With Trade,” December 28).

A famous trade economist
argues that this concern is misplaced.  In a 1996 essay, this economist
- responding to a protectionist who fretted that western trade with
low-wage countries would harm workers in the west – wrote that this
protectionist "offers us no more than the classic ‘pauper labor’
fallacy, the fallacy that Ricardo dealt with when he first stated the
idea, and which is a staple of even first-year courses in economics. In
fact, one never teaches the Ricardian model without emphasizing
precisely the way that model refutes the claim that competition from
low-wage countries is necessarily a bad thing, that it shows how trade
can be mutually beneficial regardless of differences in wage rates."

Oh – the economist who wisely warned against the pauper-labor fallacy is none other than Paul Krugman.

As defined by Kevin Drum:

Well, since you asked, the reason I
think Ron Paul is a crank is because he wants to repeal the 16th
amendment, eliminate the personal income tax, abolish the minimum wage,
deep six the Federal Reserve, and return the United States to some kind
of weird quasi-gold standard.

For those who are new to my blog, I run recreation sites like campgrounds, mostly with retired people as labor.  Retired people love these jobs, because they are looking for a nice place to live for the summer in their RV.  Often they are willing to work just for their site and utilities, though as a private entity I must pay them minimum wage as well (when they work for the government, they don’t get paid).  We sometimes get into odd situations — for example, because of a disability payment or Social Security limits, it is not unusual I have employees that ask me if I could not pay them or pay them below minimum wage, and I have to tell them no (minimum wage is absolutely required, even if the worker begs to be paid less).

This relationship works out well.  The retired persons bring conscientious and low-cost management to the campgrounds.  Our employees, who usually are living comfortably off their retirement savings or pension, get a few extra bucks and a nice place to live for the summer.  These folks may work a bit slow, but I can afford that at $6 an hour.

But what happens when a state like Maryland, because it’s got its blood up against Wal-Mart, passes a $11.30 "living" wage?  A number of problems result.  First, a camping night generally consumes, on average, about an hour of labor.  At $6 an hour with 22% burden for payroll taxes and workers comp, this totals to $7.32  per night of camping in labor.  At $11.30 an hour, this totals $13.79 per night of camping.  Most of our campsites are tent camping sites and more primitive natural campgrounds (see here) and a typical price for a night of camping is $16.  This is a very low price for camping when compared to large RV parks, and makes our sites particularly popular with lower income people.  The Marlyland minimum wage would add at least $6.50 to this price, or increase prices by 41% in one swoop.  And this is before considering second order cost increases in other purchased goods and utilities due to the minimum wage increase.

The other problem is one I would have thought so obvious that it is amazing to me that no one seems to talk about it — not everyone earning minimum wage is trying to live on it.  Certainly people new to the work force are one example, as they are often willing to trade lower initial wages for training and experience and a work record and other valuable but non-quantifiable benefits.  In my case, while I am perfectly happy to tolerate lower productivity from older, retired workers at $6 an hour (the average age of my employees is over 70), when wages are forced arbitrarily to over $11, then I have to think about changing my business model, substituting younger workers for older folks.  As any economist would predict, lower productivity workers get pushed out of the market.

For more on this topic, I discussed four case studies in my business dealing with the minimum wage.

George Reisman at Mises:

When it comes to matters such as the theory of evolution and
stem-cell research, so-called liberals—i.e., socialists who have stolen
the name that once meant an advocate of individual freedom—ridicule
religious conservatives for their desire to replace science with the
dictates of an alleged divine power. Yet when it comes to matters of
economic theory and economic policy—for example, minimum-wage
legislation—these same liberals themselves invoke the dictates of an
alleged divine power. Their divine power, of course, is not the God of
traditional religion, but rather a historically much more recent deity:
namely, the great god State.

Traditional religionists believe that an omnipotent God came before
all natural law and was not bound or limited by any such law, but
rather created such natural laws as suited him, as he went along. Just
so, today’s liberals believe, at least in the realm of economics, that
the State is not bound or limited by any pre-existing natural laws. In
the case in hand, the State, today’s liberals believe, is free to
decree wage rates above the level that would exist without its
interference and no ill-effects, such as unemployment, will arise.

Where have I heard that before?  Oh yeah, I remember:

So here is this week’s message for the Left:  Economics is a
science.  Willful ignorance or emotional rejection of the well-known
precepts of this science is at least as bad as a fundamentalist
Christian’s willful ignorance of evolution science (for which the Left
so often criticizes their opposition).  In fact, economic
ignorance is much worse, since most people can come to perfectly valid
conclusions about most public policy issues with a flawed knowledge of
the origin of the species but no one can with a flawed understanding of
economics….

In fact, the more I think about it, the more economics and evolution are very similar.  Both are sciences that are trying to describe the operation of very complex, bottom-up, self-organizing systems.  And,
in both cases, there exist many people who refuse to believe such
complex and beautiful systems can really operate without top-down
control.

By the way, the author partially addresses the Card and Krueger study on New Jersey fast food that purportedly showed that employment goes up as minimum wage goes up.  Unfortunately, the author does not get into the now fairly well-known problem with this study.  For those who don’t know, here it is:

Card and Krueger looked at the employment in fast food restaurants in New Jersey both before and after the minimum wage went up.  Here is the key process fact you need to know — they did not look at every restaurant, just at some branches of national chains (e.g. McDonalds).  They did not include, say, Joe’s sub shop.  The restaurants they studied shared a couple of traits in common:

• They were all far more professionally managed than the average small restaurant
• They all had higher labor productivity than the average restaurant
• They all had far more capital equipment (e.g. automation of labor) than the average restaurant

In other words, they studied the restaurants that were able to incur a wage increase with the least impact on their total costs (and eventually prices).  Follow-up studies have shown that there was probably a real reduction in total restaurant employment in New Jersey in the studied period, but the differences in productivity cited above caused the impact to disproportionately hit small ma and pa operations as opposed to large capital intensive nation chains.  In fact, during this period, the national chains experienced a gain in market share vis a vis smaller shops, as the higher minimum wage made it harder for local shops to compete with the national chains.  So, in fact, what Card and Krueger observed was not an economic miracle on the order of seeing the virgin Mary in your pancakes, but a predictable shift of market share from low capital to high capital competitors in response to higher wage rates.

This theme of regulation, including the minimum wage, advantaging larger competitors is an old one.  I discussed it a while back in the context of Wal-Mart’s support for a higher minimum wage:

Apparently, though I can’t dig up a link right this second, Wal-mart
is putting its support behind a higher minimum wage.  One way to look
at this is a fairly cynical ploy to get the left off its back.  After
all, if Wal-mart’s starting salary is $6.50 an hour (for example) it
costs them nothing to ask for a minimum wage of $6.50.

A different, and perhaps more realistic way to look at this Wal-mart
initiative is as a bald move to get government to sit on their
competition.  After all, as its wage rates creep up, as is typical in
more established companies, they are vulnerable to competitors gaining
advantage over them by paying lower wages.  If Wal-mart gets the
government to set the minimum wage closer to the wage rates it pays, it
eliminates the possibility of this competitor strategy. 

I thought this was amazing, from an article by John Fund on the activist group ACORN.  Most of the article is about allegations of election fraud, but this caught my eye:

Founded by union organizer Wade
Rathke in 1970, Acorn boasts an annual budget of some $40 million and
operates everything from "social justice" radio stations to an
affordable-housing arm. Still run after 36 years by Mr. Rathke as
"chief organizer," it is best known for its campaigns against Wal-Mart,
and for leading initiatives in six states to raise the minimum wage….

Acorn is vulnerable to charges
it doesn’t practice what it preaches. Its manual for minimum-wage
campaigns says it intends "to push for as high a wage as possible." But
it doesn’t pay those wages. In 2004 Acorn won a $9.50 an hour minimum
wage in Santa Fe, N.M., for example, but pays its organizers $25,000 a
year for a required 54-hour week–$8.90 an hour. This year Acorn had
workers in Missouri sign contracts saying they would be "working up to
80 hours over seven days of work." Mr. Rathke says "We pay as much as
we can. If people can get more elsewhere, we wish them well."

In 1995 Acorn unsuccessfully sued
California to be exempt from the minimum wage, claiming that "the more
that Acorn must pay each individual outreach worker . . . the fewer
outreach workers it will be able to hire." Mr. Rathke acknowledges
higher wages can cost some jobs but that the raises for other workers
are worth it.

I am not sure this hypocrisy even requires further comment.  It is particularly hilarious that he argues that economic arguments against the minimum wage (e.g. that they reduce jobs) apply to a non-profit but not to for-profit companies.

This is also hilarious, for a group that is at the forefront of trying to unionize Wal-Mart:

One of them, Sashanti Bryant of
Detroit, Mich., was a community organizer for Acorn….Ms. Barton
alleges that when she and her co-workers asked about forming a union
they were slapped down: "We were told if you get a union, you won’t
have a job." There is some history here: In 2003, the National Labor
Relations Board ordered Acorn to rehire and pay restitution to three
employees it had illegally fired for trying to organize a union.

Tonight, it appears that AZ voters will pass Prop 202 to raise recreation use fees in Arizona.  Oh, you say that’s not what Prop 202 was for?  It was minimum wage?  That’s right.  Prop 202 raises the minimum wage in AZ by 31%. 

I have written about the minimum wage many times.  For a variety of reasons, many seasonal recreation workers in AZ, and in fact in the US, are retired folks who work for minimum wage and a camp site to take care of a facility.  They love the job, and do great work, while filling seasonal jobs that younger folks trying to raise a family can’t really take on.  When you take all wage related costs — wages, payroll taxes, unemployment insurances, workers comp, liability insurance, etc. — wages drive about 2/3 of recreation costs.  That means that a 31% increase in wages equates to a 20% increase in recreation use fees for camping, boating, day use, etc.

What, you say?  That’s not what we meant!  We consumers aren’t supposed to pay this extra, you business guys are!  Well, my profit margin is about 5% of revenues, which is a pathetically low number for a service business.  Basically, I do this for fun — I could probably make a better return investing in government bonds.  So, to avoid bankruptcy, wage increases get passed right through to use fees.  And since the law requires that the minimum wage be increased every year, it means that use fees will have to go up every year (for comparison, we have been able to hold many use fees flat for 3-4 years at a time, despite fuel and other costs).

Sorry.  My employees were happy to work for $5.15 an hour.  They did not ask for a raise.  In fact, I have a waiting list of people who want jobs at $5.15.  It was the voters of Arizona who decided that my employees could no longer legally accept this amount for their labor.  And, unfortunately, it is the voters of Arizona who will have to pay for this raise my employees did not even ask for.

There are those of a libertarian bent who want to believe that the current bitch-slapping that Congressional Republicans are being handed right at this moment portends well for libertarians:  I beg to differ.  Don’t get me wrong, the Republicans deserve what they get.  But this election should not be taken as a sign that the electorate is going all libertarian.  Forget exit polls and what the news says about why people are voting the way they are — that stuff is always garbage.  Look past the people races and look to the ballot initiatives.

All over America, I don’t think voters are punishing Congress for wielding too much power over their lives.  Because when the voters themselves are being offered legislative power via propositions to use the full coercive power of government to compel their neighbors to do the majority’s bidding, they are jumping on the statist bandwagon gleefully.  Minimum wage hikes, smoking bans, new regulations, bans on gay marriage, restrictions on immigrants; heck, we even have ballot initiatives with micro-regulations for animal cage sizes.   They are all passing in Arizona and across the country. 

Currently 77% of Arizonans have voted to make Arizona prisons mini-Gitmo’s for illegal immigrants, denying them bail for any crime.  75% want to make sure no Spanish is spoken in the statehouse.  66% want to interfere in employer/employee wage negotiations.  55% want to give bar owners no choice in whether they allow smoking in their own private establishment.

Note that there is no consistent theme of conservatism or liberalism in these issues.   The first two might be seen as "conservative" issues and the second two as "liberal" issues.  But the same 2/3 are voting for each.  This is not a victory for the left or the right, but for big government populism.  The voters are getting a taste of bending their fellow citizens to their whims via the government, and they seem to like it.

Update: I am trying not to get mad, but 75% – 3/4 of the people in this state – are voting to not allow illegal immigrants to collect punitive damage awards.  I’m sorry, I understand that people are frustrated with the immigration topic, but there are certain things that strike me as basic under any notion of equal protection, that should apply irregardless of citizenship status.  Protections we should offer to any human being that happens to be in our borders.  And the ability to seek redress for damages in court should be one of them.

In addition, 57% are currently supporting the initiative to ban probation for meth users, so that even minor meth possession charges will lead to a jail term.  This means that the hugely enlightened and highly successful policy of filling up jails with marijuana users is going to be emulated and applied to meth use.

On the positive side, so far the gay marriage amendment is not passing, and the proposition to put limits on Kelo-type eminent domain takings looks like it will pass.

There just seems to be a huge philosophical muddle behind the voting here.  The electorate votes to limit kelo-type government takings and to require compensation in zoning cases where private land values are reduced, but at the same time votes strongly to ban smoking in bars and to raise the minimum wage, both of which are effectively government actions that takes value away arbitrarily from certain private individuals and businesses.

For years I have lamented tthat the average American has no philosophy — he or she only has a hodge-podge of inconsistent political views stitched together from his/her parents, from peer pressure of their social group, and from random encounters with the media.  Never have I felt this as strongly as I do tonight.

I was going to respond to Kevin Drum’s post crowing that the Oregon minimum wage increase didn’t do any harm.  But Brian Doss at Catallarchy does a fine enough job that I will outsource to him. Here is a taste:

The 5.4% unemployment rate tells us a bit more; its 1 point higher
than the national average. I’m not going to be as quick as Kevin to
infer causation from correlation here either, but it doesn’t seem like
much of a positive spin to say that a rate of unemployment that’s 25%
higher than the national average is good because it happened to be 7.2%
back in 2002…

Also, the quote seems seriously confused that there is a meaningful
distinction (in this case) between the theoretical and statistical
(what else would employment economists use in their theory?). Despite
that confusion, David Neumark (mentioned in the WSJ article) does lay out a fairly comprehensive, concrete,  statistical study of minimum wage laws and their effects here,
among other things showing that for whatever else a minimum wage does,
the effect is primarily among the teenaged to those in their early 20s,
the sign is negative, and in the long run negative if a minimum wage
prevents a teen or young adult from gaining employment and more
importantly not gaining the habits of employment.

Further evidence of the this kind is summarized by Alex Tabarrok here,
whereby he relates studies showing that 25% of the folk on the mininum
wage (nationall) are teenagers, and 50% of all minimum wage earners are
aged 25 and younger. These are people, Alex notes, that with age and
experience will likely soon earn more than minimum wage anyway, thus as
an antipoverty tool it’s fairly weak….

Its a particularly bad antipoverty tool, it has non-trivial effects
on the structure of employment within and across industries, and has
possible non-trivial long term negative effects on low-skill
individuals’ abilities to stay employed and to increase their own
productivity and standards of living. All of the things it purports to
want to do can be done by much more targeted, efficient, and effective
policy tools.² 

‘Liberals’ of America, please, I beg of you: save your breath for policies that actually help poor Americans, eh? And it you won’t do it for me, can you do it for the children…?

There is much more good stuff.

Whenever I read these articles by progressives that basically boil down to "the most basic laws of supply and demand don’t apply to labor, which is the most fundamental trade good in the economy," I just have to shake my head.  I am reminded of my advice to progressives:

Economics is a science.  Willful ignorance or emotional
rejection of the well-known precepts of this science is at least as bad
as a fundamentalist Christian’s willful ignorance of evolution science
(for which the Left so often criticizes their opposition).  In
fact, economic ignorance is much worse, since most people can come to
perfectly valid conclusions about most public policy issues with a
flawed knowledge of the origin of the species but no one can with a
flawed understanding of economics.

From Arnold Kling, one of those articles so good I have trouble excerpting it to do it justice.  Here is just a small taste of some of the principles he puts forward:

1. Liberty is important for its own sake. People are entitled to make their own choices.

2. There are other values in addition to liberty. However, many
noble causes end up infringing on liberty without achieving their
desired ends. Government policies should be evaluated on the basis of
their consequences, not on the basis of how they make us feel. It may
feel good to set a minimum wage, to impose rent control, or to declare
a war on drugs, but the evidence is that such policies tend to work to
the detriment of their intended beneficiaries.

3. I value relieving the suffering of others. However, compared with
liberals, I have considerable humility when it comes to advocating
taking other people’s money in order to satisfy my urge to alleviate
poverty.

4. Corporate power is adequately checked by market forces.
Competitors are the main force protecting consumers. Alternative job
opportunities are the main force protecting workers. For corporate
power to be a threat, it must be allied with government power.

Please, go enjoy the whole post.

PS- OK, if you really aren’t going to read the whole thing, here is another taste:

I believe that in reality what has helped the less fortunate is
economic growth. Today’s elderly are affluent not because of Social
Security, but because of all of the wealth created by private sector
innovation over their lifetimes. Government involvement in health care
and education is an impediment to progress in those fields. Job
training and welfare are demonstrable failures.

Arizona has a ballot initiative here in November to raise the minimum wage to $6.75.  Perhaps more worrisome, the law has been structured to raise the rate every year based on some cost of living increase.  (As an aside – these cost of living escalators in government-mandated wage rates are insanely recursive.  The government raises wages, which increases prices, which leads to a further increase of the statutory rate).  An Arizona group opposed to the initiative has put out a nice Word document with the proposed laws language annotated with facts and refutations.

I will not be coy and pretend that I don’t have an interest in this question.  The campgrounds we operate on public lands were run by volunteers in the past, until the courts decided that private companies were not legally allowed to use volunteers.  Most of our camp hosts, who tend to be in their 70′s or older (we have many employees in their eighties and a few in their nineties!) get paid minimum wage plus a camp site in a nice park for the summer (the latter is what they really want).  Unlike private campgrounds that are built to be efficient to operate, the public campgrounds we operate tend to be small and labor-intensive.

We make about a 5% profit on sales in the camping business (yes, I know that is pathetically low).  Labor is 60-70% of our costs, if you include costs that are directly tied to wages like payroll taxes and workers comp. premiums.  This law would raise the minimum wage by 31%.  You do the math.  In a stroke, this ballot initiative would raise our costs by 20% (.31 x .65) in a business where costs are 95% of revenues.  Something has to give.  I am not going to work the hours I work and run the business for charity.  A 5% margin is almost there already.  We are therefore planning for two different contingencies.

1. Camping fees will have to rise by approximately 20%.  This means that a camping fee of $16 will go up by $3.  I will not make any more money, this will all be a pass-through to my employees, most of whom really wanted to volunteer in the first place.  One could rename this ballot initiative the "vote yourself a camping fee increase" initiative.  A few years ago, an attempt to raise lodging taxes on camping by a few percent met with howls of opposition.  But in effect this is ballot initiative in in effect adding a 20% tax to camping fees.

2. My labor model of hiring retired people may well have to change.  There is a real trade-off in hiring retired folks to maintain campgrounds.  On the plus side, we get a lot of honest and responsible people who have the time and the flexibility in their life to pick up stakes and go live in a campground all summer.  The down side, of course, someone who is 75, or 85, is not going to work as fast or as productively as younger folks.  My workers also tend to get injured more easily (my insurance company freaks every time it sees my employee list with dates of birth) which costs a lot in workes comp. premiums.

   When presented with the choice in the current market of hiring a retired person at $5.15 an hour or a younger, faster worker at $7.50 an hour, I have been happy to hire retired people.  This model has worked great for us.  Unfortunately, I must revisit this business model when my choice is between hiring a faster worker at $7.50 and a slower worker at $6.75 (and rising).  Already in high minimum wage states like CA, OR, and WA we have begun shifting away from hiring as many retired people.  I also hire a lot fewer people, having invested in automated fee collection in high labor cost areas.  (Think about this, at least for a few seconds, before all of you start sending me the inevitable emails I get for being a heartless brute for paying anyone minimum wage).

By the way, the federal government gets around this problem for the campgrounds it operates itself.   How?  Why, it exempts itself from these laws.  Most federal campgrounds employ retired persons as volunteers.  They don’t pay campground workers minimum wage, they pay them ZERO.

I wrote a much longer post on minimum wage laws here.  Minimum wage laws are becoming hip in traditionally red-state border areas as a tool to keep immigrants from working.

Update:  I actually underestimated the amount of my costs directly tied to wages, and so I have updated some of the numbers to be more realistic.

I have defended Wal-Mart on a number of occasions given its new whipping-boy-of-the-left status.  However, if it wants to get my further support, it is going to have to take it’s nose out of the public trough.

It’s hard to find reliable numbers on the total value to Wal-Mart of such subsidies. The leading report is Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth
by Philip Mattera and Anna Purinton was published by a left-leaning
advocacy group and funded in part by one of the very unions trying to
unionize Wal-Mart’s work force, which will suggest to some a need for
caution. Yet, even if one applies a substantial discount to Mattera and
Purinton’s results, Wal-Mart is still doing quite well at the public
trough:

• In a sample of subsidy deals for individual stores, they found
  subsidies ranging from "$1 million to about $12 million, with an
  average of about $2.8 million."
• In a survey of Wal-Mart regional distribution centers, they found
  that "84 of the 91 centers have received subsidies totaling at least
  $624 million. The deals, most of which involved a variety of subsidies,
  ranged as high as $48 million, with an average of about $7.4 million."

In a very real sense, Wal-Mart thus is in part a creature of big
government. From this perspective, Wal-Mart’s recent hiring of
long-time Democratic operative Leslie Datch and significant increase in
contributions to Democratic politicians comes as no surprise. (Of
course, as Timothy Carney has argued,
it may also be that Wal-Mart is now using big government not just to
boost its own growth but as a tool to squash competition.)

Is Wal-Mart becoming the Archer-Daniels-Midland of retail?  In fact, the article does not even mention the egregious practice of getting local governments to use eminent domain to clear them a building location.  A while back I argued that Wal-Mart was using regulation as a club to pound on their competitors:

Apparently, though I can’t dig up a link right this second, Wal-mart
is putting its support behind a higher minimum wage.  One way to look
at this is a fairly cynical ploy to get the left off its back.  After
all, if Wal-mart’s starting salary is $6.50 an hour (for example) it
costs them nothing to ask for a minimum wage of $6.50.

A different, and perhaps more realistic way to look at this Wal-mart
initiative is as a bald move to get government to sit on their
competition.  After all, as its wage rates creep up, as is typical in
more established companies, they are vulnerable to competitors gaining
advantage over them by paying lower wages.  If Wal-mart gets the
government to set the minimum wage closer to the wage rates it pays, it
eliminates the possibility of this competitor strategy.  Besides, a
higher minimum wage would surely put more low-skilled people out of
work, increasing the pool of people Wal-mart can hire  (and please do
not bring up the NJ convenience store study that supposedly shows that
higher minimum wage increase employment – no one in their right mind
really believes that demand for labor goes up when the costs go up).  I
am not sure what the net effect on Wal-mart’s customers would be –
some would have more money, from higher wage, and some would have less,
from fewer hours or due to being laid off.

I have defended Wal-mart in the past,
but I am going to stop if they become the new auto or steel industry
and use the government to protect their market position.  Already they
are losing my sympathy with their whoring for local relocation subsidies and eminent domain land grabs.

If Wal-Mart wants to seek public funding for its business and impose regulation on its competitors, and thereby make itself a semi-governmental entity, then I am no longer going to have any sympathy for them when governments want to single them out for special regulation, no matter how bone-headed the regulation may be.

Many of you will know that a big impetus for the original minimum wage laws in this country were a racist effort by unions (almost exclusively made up of white workers at the time) to protect white jobs from competition by low-skilled blacks.  [note:  This is not the only impetus, however.  Many of the original minimum wage supporters were not racist at all.  However, a large number of the original supporters of the legislation liked it in part because it was seen as sheltering higher skilled white workers from black competition, particularly in northern states experiencing substantial migration of black workers from the deep south]

This week, in the New York Times of all places, Michael Dukakis and Daniel Mitchell return to these same racist roots to justify a substantial hike in the minimum wage.  Their logic is that it will protect white workers from competition from immigrant (read: Mexican) labor:

But if we want to reduce illegal immigration, it makes sense to reduce the
abundance of extremely low-paying jobs that fuels it. If we raise the minimum
wage, it’s possible some low-end jobs may be lost; but more Americans would also
be willing to work in such jobs, thereby denying them to people who aren’t
supposed to be here in the first place

By the way, note that we finally have prominent liberal voices who will acknowledge that raising the minimum wage reduces the number of jobs.  Also note that while the authors try to narrow their focus to illegal immigrants, no such narrowing of effect would occur in real life:  All low skilled people, legal or illegal in their immigration status, would lose jobs.  But for the authors this is OK as long as more brown people than white people lose their jobs.  I mean really, that’s what they are saying:  We like this law because it will preferentially put low-skill people, particularly brown people, out of work.  If Rush Limbaugh had said the same thing, there would be a freaking firestorm, but there’s the good old NYT lending their editorial page to this sick stuff.  Marginal Revolution has more comments along the same lines.

I am sick of the condescension and arrogance that comes with statements like theirs that Americans won’t work for the minimum wage.  That’s ridiculous, because many do, and have good reason to.

Take my company.  A number of my workers are paid minimum wage. Am I the great Satan? Why do my employees accept it?  Because 99% of my workers are over the age of 70 — they work slower and are less productive, but I like them because they are reliable.  There’s no way anyone is going to pay them $15 an hour to run a campground — for that price, someone younger and faster will be hired, but at or near minimum wage they are great.  And they are generally happy to start at minimum wage (plus a place to park their RV for the summer).  In fact, I have more discussions with employees trying to get paid less (conflicts with social security and retirement benefits and disability payments) than I have people asking for more. 

Granted, my situation is fairly unique.  But Michael Dukakis in his infinite wisdom thinks no one under any circumstances should be allowed to accept less than $8 an hour for his labor.  What does he know about campgrounds or my employees?  Nothing, but he is going to try to override my and my employees’ decision-making if he can.  Because he knows better. 

Maybe Mr. Dukakis can write a note to all my older, slower employees after the new minimum wage passes and explain to them why they should be happier without a job camp-hosting (which most of them love to do, probably more than you like your job) than having to accept a wage that Mr. Dukakis thinks to be too low. 

Continue reading ‘This is Sick – Dukakis Advocates Jobs Go To White People First’ »

Some days, I just don’t have the energy to issue yet another rebuttal of serial economic ignorance.  But the folks at Cafe Hayek never seem to get tired.  You can find thoughtful rebuttals to accusations that Oil prices are too high, Wal-Mart prices are too low, and the minimum wage needs to be raised.

Rioting in the immigrant-heavy, Muslim-heavy quarters of France continues

The unrest started last Thursday when angry
youths protested the accidental deaths of two teenagers in
Clichy-sous-Bois, who were electrocuted when they jumped a wall
surrounding a high-voltage electrical transformer while fleeing police. The
anger spread across the housing projects that dominate many of Paris’
northern and northeastern suburbs, which are marked by soaring
unemployment, delinquency and a sense of despair.

The
rioting has grown into a broader challenge for the French state. It has
laid bare discontent simmering in suburbs where immigrants — many of
them African Muslims — and their French-born children are trapped by
poverty, unemployment, discrimination, crime and poor education and
housing.

There are those who want to call this the beginning of a new European Intifada, a war of Muslims against non-Muslims.  They want to portray these riots in the same context as Islamic terrorism and Al Qaeda. 

Call me slow, but I just haven’t seen evidence that the recent violence in Paris has religious overtones.  Maybe it is under-reported, but I haven’t seen any targeting of Christians or Jews or Jewish Temples and such that one might expect in intifada-type violence. 

So far, a better explanation seems to be that these neighborhoods have been the victim of of the current form of Euro-socialism.  In this economic model, a whole collection of laws make it very expensive for companies to hire anyone.  If you do hire anyone, you have to pay them a very high salary, give them a fat package of benefits, weeks and weeks of paid vacation, and they only have to work 36 hours a week for you.  And, if the person doesn’t do a good job, too bad because it is nearly impossible to fire them.  This may appear to be a great system for those who already have a job, but for the unemployed, the young, and the unskilled, it is a disaster.  Who in their right mind is going to take a chance on a young, unskilled employee who you have to pay a fortune and who you can’t fire if they aren’t any good.  And in particular, who is ever going to hire a young, unskilled immigrant for a job in France?

The answer is no one, which is possibly another reason for the rioting.  France has an unemployment rate that has hovered around 10% for years, but the unemployment rate for those under 25 years old is a truly shocking 23% and I would bet the unemployment rate for young immigrants may be as high as 40-50%. 

In the US, we have gone through phases of this same type of economic thinking.  A big part of motivation behind the original passage of minimum wage law, including the recently famous Davis-Bacon law, was to protect skilled white laborers against wage competition from blacks and immigrants.  Fortunately, the US has always stopped short of the radically distorting labor market laws they have in Europe, but new efforts in this country to raise minimum wages and generally make it harder for immigrants to enter the labor market should worry all of us, particularly those of us in immigrant heavy states like Arizona.

Last week, I posted on why Wal-Mart may be calling for higher minimum wages, and hypothesized that it may be because it won’t hurt them (since they already pay well higher than the minimum) and may hurt competitors.  Llewellyn Rockwell of the Mises Institute, one of the few people in America with three sets of double-L’s in his name, expands on this hypothesis:

The current minimum is $5.15. According to studies, Wal-Mart pays between
$8.23 and $9.68 as its national average. That means that the minimum wage could
be raised 50% and still not impose higher costs on the company….

So who would it affect if not Wal-Mart? All of its main competitors. And the
truth is that there are millions of businesses that compete with it every day.
Many local stores have attempted to copy Wal-Mart’s price-competitive model, but
face lower costs and can actually thrive….

Even similar stores such as K-Mart can pay lower wages, and that can make the
margin of difference. K-Mart pays over a much wider range, as low as $6.75 an
hour. A major competitor is mainstream grocery stores, where workers do indeed
start at minimum wage. Target too pays starting employees less than Wal-Mart, if
the Target Union can be
believed.

Now, if Wal-Mart can successfully lobby the government to abolish lower-wage
firms, it has taken a huge step toward running out its competition. The effect
of requiring other firms to pay wages just as high as theirs is the same as if
the company lobbied to force other companies to purchase only in high
quantities, to open large stores only, or to stay open 24 hours. By making
others do what Wal-Mart does, the company manages to put the squeeze on anyone
who would dare vie for its customer base.

Now here is the great irony. The left has long been in a total frenzy about
how Wal-Mart saunters into small towns and outcompetes long-established local
retailers. Wal-Mart’s opponents have whipped themselves into a frenzy about the
company’s success, claiming that it always comes at a huge social cost.

Now, most of this rhetoric is overblown and ignorant. Wal-Mart would not have
made any profits or grown as it has without having convinced the consuming
public to purchase from the store. Consumers could put the company out of
business tomorrow, just by failing to show up to buy.

The left’s claims of unfair practices would be valid if Wal-Mart did indeed
work to impose legal disabilities on its competitors — in effect making it
illegal to outcompete the company. And yet that is precisely what raising the
minimum wage would do: impose a legal disability on those companies engaged in
lower-wage competition with Wal-Mart. So the economically ignorant left
advocates raising the minimum wage.

Apparently, though I can’t dig up a link right this second, Wal-mart is putting its support behind a higher minimum wage.  One way to look at this is a fairly cynical ploy to get the left off its back.  After all, if Wal-mart’s starting salary is $6.50 an hour (for example) it costs them nothing to ask for a minimum wage of $6.50.

A different, and perhaps more realistic way to look at this Wal-mart initiative is as a bald move to get government to sit on their competition.  After all, as its wage rates creep up, as is typical in more established companies, they are vulnerable to competitors gaining advantage over them by paying lower wages.  If Wal-mart gets the government to set the minimum wage closer to the wage rates it pays, it eliminates the possibility of this competitor strategy.  Besides, a higher minimum wage would surely put more low-skilled people out of work, increasing the pool of people Wal-mart can hire  (and please do not bring up the NJ convenience store study that supposedly shows that higher minimum wage increase employment – no one in their right mind really believes that demand for labor goes up when the costs go up).  I am not sure what the net effect on Wal-mart’s customers would be — some would have more money, from higher wage, and some would have less, from fewer hours or due to being laid off.

I have defended Wal-mart in the past, but I am going to stop if they become the new auto or steel industry and use the government to protect their market position.  Already they are losing my sympathy with their whoring for local relocation subsidies and eminent domain land grabs.  I wrote on minimum wage from a small business perspective here.

Yesterday, Flagstaff, AZ became the latest community to vote on limits to "big box" stores.  When Wal-mart wanted to create a larger store that offered groceries, a group of local citizens didn’t like the idea.  Not satisfied with exercising their individual right not to shop there, they got their city government to craft an ordinance to stop Wal-mart from expanding.  Wal-mart supporters gathered signatures and forced the ordinance to clear the voters as Proposition 100.   Via Arizona Watch, the ordinance would:

1. Prevent retail establishments larger than 125,000 square feet
2. Require retail establishments larger than 75,000 square feet to restrict the
   sale of non-taxable grocery items to less than 8% of their floor space
3. Require retail establishments larger than 75,000 square feet to be subject
   to economic impact studies
4. Require a conditional use permit (and the associated community input and
   hearings) for establishments larger than 75,000 square feet

Like all zoning, the ordinance was an attempt of citizens to control the use of someone else’s property without having to actually buy the property.  Fortunately, the measure failed, though narrowly.  I will say that to some extent, I have trouble defending Wal-mart.  Wal-mart often takes advantage of statist actions to grow, including accepting loads of local government incentives and even eminent domain to grow.   To some extent, getting nailed by a local government is just getting hoist on its own petard, but I will defend them anyway because I could be next.

Supporters of the ban rallied under the "new urbanism" concept:

Meanwhile, the New
Urbanism concept — a community design that mixes residential and
businesses districts to decrease the need to drive to outlying areas –
may face some challenges.

"What this
means is we’re going to have to make some alternatives to the New
Urbanism vision," said Councilmember Kara Kelty. "We understand that we
have to maximize land usage. We need to continue that effort, but we
can’t do that without the public."

Basically New Urbanism supporters would rather have a bunch of expensive and limited choice (but cute!) boutiques for you to shop at rather than whatever store you would prefer to shop at.  Rather than leaving this decision up to consumers, we-know-better-than-you planners in government take this upon themselves.  Reason had a nice article on New Urbanism.  Cato critiqued the smart growth folks here.

But, don’t be fooled that this is just about land use.  This reaction article from the Arizona Daily Sun has some priceless quotes (note that these are from people the reporter found shopping in Wal-mart!):

"I voted ‘Yes.’ I’m really
disappointed because this town has enough Wal-Marts, and I don’t know
where they’re going to find land space for huge stores, with that kind
of square feet. We’re running out of room for people to live here. I
wonder how happy they’ll be if the Super Wal-Mart was built on McMillan
Mesa, that’s private land. I don’t know where they’re going to put one."

First, if they can’t find the land, then there won’t be a problem, will there?  And god forbid someone builds a Wal-mart on private land. Should we use eminent domain instead?  I must admit that to some extent I sympathize with the residents of Flagstaff.  Like Boulder or Vail, it is a small town in a beautiful mountain setting.  And, like Boulder and Vail, the wealthy of nearby large cities (Phoenix) have descended on it, buying second homes like crazy.  The result has been increased traffic and prices, offset by a white-hot economy, increases in wealth for long-time residents via existing home prices, and huge boost to the tax base that is much larger than the cost of serving the new part-year residents.  The locals are trying to figure out how to keep the capital gains in their homes, keep the extra jobs, and keep the extra taxes without actually having any new people in town, and its not really working for them.

"My first reaction was
‘Boo’ when they announced it. They announced it over the loudspeaker. I
heard some cheers, and I heard some claps. The one thing I hate is the
thought of creating minimum-wage, part-time jobs that do not pay their
employees’ benefits. They’re just going to exploit more college
students, like they do here. I do shop here for lack of a better place
to shop."

Whoa, this doesn’t sound much like land use, but it sure is heard as a rationale a lot for anti-Walmart zoning.  Look, if Wal-mart is paying too little, then no one will take the jobs.  Since these are net new jobs, they likely will go to people not now currently working.  How does that hurt anyone?  By the way, you gotta love the "exploit more college students" swipe.  Since when are college students owed more than minimum wage?  I worked for minimum wage in college, and I seem to be OK.  Also, how can many college students want anything other than part-time work?  And, most hilariously, I don’t know any [mostly young, healthy] college student that gives a rip about benefits (by which I presume they mean medical).  Very few college students have or need health coverage separate from their parents or school programs anyway. I wrote a lot more about Wal-mart and wages here.

By the way, this man’s commitment to principals is hilarious.  When quoted, he was shopping at Wal-mart.  This person can’t even be bothered with the one strong individual free-will non-coercion option open to him:  Don’t shop there.  When quoted, he was at that very moment benefiting in the form of lower prices for whatever was in his cart from these supposedly horrible labor practices.  Jeez, talk about knee-jerk statism.  If half of the shoppers in that store voted for this limit Wal-mart ordinance, then get them together and boycott the damn place and you’ll probably shut it down, and you could leave the government and property rights violations out of it.

Now, let us all get out our violins for this guy who voted for the limits:

"I feel like a hypocrite
because I do shop at Wal-Mart. If we let them build a Super Wal-Mart,
what happens to this current store? Are we going to have a big empty
space there? If they move it to the other side of town, I won’t go over
there. This is convenient for me.

OK, so this man voted to use government force and coercion to wipe out the property rights of other private individuals because… he was afraid new stores might be less convenient?  Look folks, this is why we have a Constitution and Bill of Rights, and why the founders did not create an unlimited democracy.  51% of the people are not supposed to vote away the rights of the other 49%.  We protect rights like speech against such tyranny of the majority.  At some point, unfortunately, we stopped protecting property rights.  This is the result – your property rights effectively subsumed to people who are worried about driving too far to the store.

I will end on this one:

"I think it stinks. I
voted ‘Yes’ for the proposition. I definitely didn’t like the tactics
(Wal-Mart) used. I wish people didn’t go and shop there. I really
thought it was going to get beat. We voted down fluoride, so why not
vote down Super Wal-Mart? That’s the kind of town we are. This town has
that kind of progressive attitude. I’m just disgusted with the whole
corporation — Wal-Mart. I think it’s wrong."

I have written a number of times:  Do not be fooled by the term "progressive".  Progressives, despite the name, hate bottom-up, non-controlled-from-the-top change.  More than that, they hate the decisions you make with your own property.  They believe that they can make much better decisions for your property than you can.  The next time you support the "progressives" in stripping some third party of their property rights, remember that you might be next.  Remember the progressive slogan:  "All Your Base Are Belong to Us".

Frequent readers of this site may know that my day job is running a company that manages recreation sites under concession contract to a number of public landowners, including the US Forest Service.  I take a lot of pride in this job, as our company helps keep recreation facilities open that the government might not have the personnel or the skills or the money to run.  The Forest Service’s budget gets cut about every year, such that tax money comes nowhere near covering the cost of managing recreation sites.

Of late, the Forest Service has begun looking to actually close some recreation facilities:

The cash-strapped
U.S. Forest Service can no longer afford to maintain many of its parks
and has started ranking recreational sites, including campgrounds and
trail heads, for possible closure.

Supporters of public lands generally hate the onset of fee-based recreation, and wish it was still possible for all public recreation facilities to be free.  This was a realistic goal back when recreation facilities were cheap to run, but today campgrounds and other such facilities can be tremendously expensive(a single large campground might cost as much as a half million a year to operate), in large part due to actions by the same people who support free use of public lands.  Some examples:

• 50 years ago, campgrounds labor was essentially free because it could be staffed with volunteers.  With current labor laws, this is no longer possible (even if people still want to volunteer), and a large campground can require hundreds of thousands of dollars of labor to maintain each year, even at minimum wage.
• 50 years ago, people in the outdoors just drank water from a stream or out of the hand pump.  Today, in certain complexes, we spend tens of thousands of dollars keeping water systems in compliance with complex state laws.
• 50 years ago, if someone tripped over a root in the forest or twisted their ankle on a rock, they accepted that as a normal risk of being out in nature.  Today, everyone calls their lawyer.  Each year, campground visitors file millions of dollars of lawsuits for accidents once thought to be normal hazards of nature.
• 50 years ago, active timber sales in the forest helped fund recreation programs.  Today, timber sales in many forests are at an all time low, due in large part to opposition by nature lovers

So, I admit I don’t know the person who said this:

“They will close
those sites the public has always enjoyed but which they cannot afford
because they are not profitable,” said Scott Silver of the Bend group
Wild Wilderness. “It’s the complete perversion of the meaning of public
lands.”

But I would bet quite a bit that he supports some or all of the laws and government regulations listed above that make running recreation facilities so much more expensive than 50 years ago.

Update: By the way, though I might disagree with Scott Silver on the necessity of use fees at developed facilities like campgrounds or boat ramps, he is dead on in certain respects:

• Politicians love to fund splashy new recreation projects, but hate to fund basic maintenance.  This means that at the same time campgrounds and facilities are closing due to lack of maintenance dollars, new facilities are being opened all the time.  This strikes me as absurd. 
• Recreation facilities on public lands are missing the boat when they attempt to emulate private operations too much.  There are plenty of KOA’s next to the interstate with pools and video game rooms.  Campgrounds on public lands have typically taken a different approach and served a different niche, that of providing a more primitive experience closer to nature, and I think its a mistake when they move away from this approach.

Unfortunately, as is often the case, I will never be able to see eye-to-eye with such groups because they refuse to acknowledge that as a private company I can be anything but Darth Vader with secret plans to put up a Walmart in Yosemite or put up billboards along a nature trail.  Crusading socialists often have the funniest ideas about the profit motive.  For example, if I make most of my money at a recreation site catering to people who want a wilderness experience, why in the world would I do anything to interfere with that experience?  It does not matter what the situation or the facts or the company, the first arguments are always that private companies just want to take a natural setting and put up advertising, then build a shopping mall.

By the way, Mr. Silver sees conspiracies among the private recreation companies.  I have sat on some committees in the "evil" organizations he cites, and I will tell you with complete assurance that these groups would have trouble crafting a successful plan to buy a 6-pack of beer from the local 7-11, much less shape government policy to their ends.  But maybe I got left out of all the really cool SPECTRE-type meetings. 

OK, I will begin this post with what I guess is, for some, a damning admision:  My company pays many of its employees minimum wage. 

I believe that I have a very honorable relationship with my employees, but for many, particularly on the left, the fact that I pay minimum wage puts me at the approximate moral level of a forced labor camp gaurd.  For those of you that feel that way, you might as well move on now because this post will just irritate you further.

I want to present four case studies from my own business as to what happens to workers and consumers when minimum wages go up.  For the purpose of this post, I will leave out the philosophical argument of why voters or politicians should even have the right to interfere in the free decision-making between employer and employee, but I certainly addressed it here, in this post.  Unfortunately, a large number of voters accept the argument that there is a power imbalance between employer and employee that needs to be moderated by measures like the minimum wage  (folks who believe this obviously never have tried to attract and retain quality wokers). Many politicians support minimum wage measures, mainly because it is one of those measures, like protectionism, where the benefits (e.g. Joe got a raise) are much easier to identify than the costs (e.g. Mary lost her job).

Before I get into the case studies, it may be helpful to describe my workers, because in some ways their situation is unique.  To run our campgrounds, we mainly employ retired people.  Of my 500 workers, well over half are over 60 years old, more than 150 are over 70, some 25 or so are over 80 and a few are even over 90!  Most are on social security and medicaire, and many have pensions and retirement health plans.  A good number are disabled and have some sort of disability support.  While they work slower, they make up for their low productivity in part by their friendliness with customers and their life experience.

Most of  my employees travel the country in their RV.  They take most of the year off, but many like to work over the summer to make a little money and to pay for their camping site.  I give many of them a free or subsidized campsite, worth about $500+ a month, plus all their utilities and then pay them minimum wage for the hours they work.  Many are thrilled with these terms – so many that I have a waiting list now of over 300 names of people who are looking for this type work.  This list is currently growing by about 10 names a day.

There may be employers somewhere who have a power imbalance over their employees.  Some days, I envy them.  My employees most all have independent means of support.  Further, they all have wheels on their houses, so they can and do pick up and leave if they aren’t enjoying their job.  And, if they don’t like our company, there are thousands of other campground operators who are looking for help.

So why are so many people lining up for minimum wage jobs when lefties and progressives are telling them that they should not want those jobs?  Here are some reasons:

• They value the amenities that come with the job, including living for free in a beautiful outdoor setting, something it is impossible to value under minimum wage laws
• They have other means of support, so the money is incidental.  In fact, I get more inquiries from employees asking me to reduce their hours so as not to mess up their social security or diabiloity payments as I do people asking for more pay
• They get to work with their spouse as a team.  There are not many employers out there that let a husband and wife split up work between them any way they want or even work together – can you imagine such a situation on a GM assembly plant?
• They would have a hard time getting hired by anyone else.  Very few employers will hire new workers in their sixities, and certainly not older than that.  Older workers can be slower and less productive.  For $12 an hour, I would have to hire younger workers too, but at minimum wage, I can afford the lower productivity of older workers and gain the benefit of their experience and trustworthiness.

This last point help set the stage for our cases.  I love hiring older workers at $5.15 an hour, and they love the job and line up for it.  But what happens when I have to pay these less productive workers $6.00 an hour?  What about $7.50?  What about at $12.00 an hour?  Here are some examples of what happens:

Case 1:  The jobs just go away

Washington State has one of the higher minimum wages in the country, at $7.35 an hour.  What makes the Washington minimum particularly hard to manage is the fact that it has a built-in escalator, such that it rises each year based on an inflation index (as you might imagine, since labor is a major component of most goods and services, this creates a positive feedback loop). 

We run a number of campgrounds in Washington under concession contract from the US Forest Service.  Most of these campgrounds are both small and very isolated, and are therefore labor intensive.  Given local market conditions, it is increasingly difficult to raise fees fast enough to keep up with rising labor rates (as well as labor-linked costs such as workers comp and unemployment) since we are competing against larger private campgrounds that are designed more efficiently and may be closer to local labor.  We have effectively given up trying to make money in this area, and will very likely not rebid the contract when it expires.  Given USFS experience on other similar contracts in the area, there is a good chance that no private company will bid for the contract, and the campgrounds will revert to USFS operation.  In this case, many will likely be closed, and instead of having minimum wage jobs, there will be no jobs left at all.

Case 2:  The jobs get outsourced to contractors

In a number of locations, we have been forced by rising minimum wages and associated costs (particulalry workers comp.) to switch some of our cleaning and landscaping duties from our live on-site employees to local contractors.  These contractors may pay their workers more than minimum wage, but the workers are often twice as productive as ours, yielding a cost savings for us.  When minimum wages are $5.15 an hour, these contractors can’t compete with our own workers, but when minimum wages rise over $7.00, as they are across the west coast, this option starts to become attractive.

Case 3:  The jobs get automated away

One of the more frustrating situations we have is one government concesion contract where the government has continued to insist that the Service Contract Act (SCA) applies.  Like the Davis-Bacon act, the SCA sets minimum wages that contractors have to pay to employees when serving the government (for example, on a contract to clean the bathrooms in a goverment office building).  These rates, while ostensibly the market prevailing wages, are in almost every case FAR higher than what a private company would have to pay in the market to get good employees.  By specific Labor Department regulation, the SCA typically does not apply to concession contracts (I won’t bore you with the details, but more in this series here or email me if you need help in a similar situation, I have been forced to become an expert).

Anyway, on this particular concession we have to pay our living-on-site workers based on the SCA.  This means, for example, that someone who sits in a parking lot booth collecting parking fees must be paid something like $12.50 an hour, which translates to a bit over $15.60 when you factor in FICA, SUI and workers comp.  Over 2000 hours a year that is $31,200 a year. 

A fully automated fee collection machine (which actually does more than the attendent, since it takes credit and debit cards as well as makes change for cash) costs $23,000.  Plus, the machine never will sue over wrongful termination, never will discriminate against or sexually harass a customer, never will steal, and never will fail to show up for work. 

What would you do?  I would prefer to have the person there, and if we put the machine in I will still  probably staff the booth on busy summer weekends to help customers out, but over 5 years the machine may save us over $100,000.

Case 4:  Prices go up to customers

Last election, Floridians voted themselves a minimum wage increase of $1.00, and worse, voted that the wage will increase each year by a cost of living factor.  As a result, on the May 2 effective date, our costs will go up by about 15% in managing the swim areas and campgrounds in that area.  Since this is well over our profit margin, prices will also go up by the same amount on the same day.  This is unfortunate, because it tends to be lower income people who most enjoy the recreation opportunities we offer, since historically we have been able to keep our costs, and therefore the pricing, so much lower than outrageously expensive attractions like Disney and Universal Studios.

Final Thoughts

I’m not going to cry that my business is doomed by minimum wage increases, because it is not.  As you can see above, we have many options for dealing with these changes.  What I fear may be doomed, though, is the special relationship our company has always had with older, retired workers. For now, the business model is OK, but there is a point, somewhere between about $7.00 and hour and $10.00 an hour, where rising minimum wages will push us to look for other ways to staff our parks rather other than our traditional use of live-on-site retirees.  And that would be sad for everyone.

For more on the topic, Powerline has a nice article today on minimum wage increase proposals in Minnesota.  It is astounding to me that people still want to believe the notion that minimum wages don’t affect employment.  Just look at France and Germany for living proof.  Or, consider any other commodity in the market.  If the government set a price floor for gasolene, say at $3.00 a gallon, would anyone out there argue that people wouldn’t use less gas?  But when we try to raise the price floor on labor, the media and politicians with a straight face try to argue that businesses won’t use less labor.  Or, for the reverse, look at the experience with natural gas and airline travel – the government removed price floors on these commodities in the lates 70s / early 80s and look at how demand has skyrocketed.  (update: Powerline has a second post on the topic here)

For even more good reading, Cafe Hayek is always a good source for defense of free market economics, including this good post on French work week laws.  More on minimum wage here.